DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

12 Months Ended

Dec. 31, 2015

Derivative Instruments And Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

(12) DERIVATIVE INSTRUMENTS AND HEDGING STRATEGIES

Foreign Currency Exchange Rate Exposure

The Company uses forward foreign currency exchange contracts to hedge certain operational exposures resulting from potential changes in foreign currency exchange rates. Such exposures result from portions of the Company’s forecasted revenues and operating expenses being denominated in currencies other than the U.S. dollar, primarily the Euro, the British Pound and the Brazilian Real.

The Company designates certain of these forward foreign currency exchange contracts as hedging instruments and enters into some forward foreign currency exchange contracts that are considered to be economic hedges that are not designated as hedging instruments. Whether designated or undesignated, these forward foreign currency exchange contracts protect against the reduction in value of forecasted foreign currency cash flows resulting from product revenues, royalty revenues, operating expenses and asset or liability positions designated in currencies other than the U.S. dollar. The fair values of forward foreign currency exchange contracts are estimated using current exchange rates and interest rates, and take into consideration the current creditworthiness of the counterparties or the Company, as applicable. Information regarding the specific instruments used by the Company to hedge its exposure to foreign currency exchange rate fluctuations is provided below.

At December 31, 2015, the Company had 221 forward foreign currency exchange contracts outstanding to sell a total of 309.0 million Euros, 150 forward foreign currency exchange contracts outstanding to purchase 143.1 million Euros, 24 forward foreign currency exchange contract to sell 12.5 million Canadian dollars and 12 foreign currency exchange contracts to sell 39.2 billion Columbian Pesos with expiration dates ranging from January 2016 through November 2018. These hedges were entered into in order to protect against the fluctuations in revenue and operating expenses associated with Euro-denominated cash flows. The Company has formally designated these forward foreign currency exchange contracts as cash flow hedges and expects them to be highly effective in offsetting fluctuations in revenues and operating expenses denominated in Euros related to changes in foreign currency exchange rates.

The Company also enters into forward foreign currency exchange contracts that are not designated as hedges for accounting purposes. The changes in fair value of these forward foreign currency exchange contracts are included as a part of SG&A expense in the Company’s Consolidated Statements of Operations. At December 31, 2015, the Company had one outstanding forward foreign currency exchange contract to sell 40.1 million Euros and one outstanding forward foreign currency exchange contract to sell 3.9 million British Pounds, which were not designated as hedges for accounting purposes and matured on January 31, 2016.

The maximum length of time over which the Company is hedging its exposure to the reduction in value of forecasted foreign currency revenues through forward foreign currency exchange contracts is through November 2018. Over the next twelve months, the Company expects to reclassify $13.1 million from accumulated other comprehensive income to earnings as the forecasted revenue transactions occur.

The fair value carrying amounts of the Company’s derivative instruments were as follows:

	Asset Derivatives			Liability Derivatives
	December 31, 2015			December 31, 2015
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging      instruments:
Forward foreign currency exchange contracts	Other current assets	$	10,478	Accounts payable & accrued liabilities	$	1,986
Forward foreign currency exchange contracts	Other assets		3,533	Other long- term liabilities		3,057
Total		$	14,011		$	5,043
Derivatives not designated as hedging      instruments:
Forward foreign currency exchange contracts	Other current assets	$	—	Accounts payable & accrued liabilities	$	22
Total			—			22
Total value of derivative contracts		$	14,011		$	5,065

	Asset Derivatives			Liability Derivatives
	December 31, 2014			December 31, 2014
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging      instruments:
Forward foreign currency exchange contracts	Other current assets	$	10,206	Accounts payable & accrued liabilities	$	—
Forward foreign currency exchange contracts	Other assets		5,387	Other long- term liabilities		—
Total		$	15,593		$	—
Derivatives not designated as hedging      instruments:
Forward foreign currency exchange contracts	Other current assets	$	307	Accounts payable & accrued liabilities	$	12
Total			307			12
Total value of derivative contracts		$	15,900		$	12

The effect of the Company’s derivative instruments on the Consolidated Financial Statements for the years ended December 31, 2015, 2014 and 2013 was as follows:

	Forward Foreign Currency Exchange Contracts
	2015			2014			2013
Derivatives Designated as Hedging Instruments:
Net gain (loss) recognized in Other Comprehensive Income (OCI) (1)	$	17,300		$	18,078		$	(1,366	)
Net gain (loss) reclassified from accumulated OCI into income (2)		19,604			643			49
Net gain (loss) recognized in net loss (3)		(727	)		(294	)		310
Derivatives Not Designated as Hedging Instruments:
Net gain (loss) recognized in net loss(4)	$	4,493		$	8,010		$	(2,041	)

(1) Net change in the fair value of the effective portion classified as OCI.

(2) Effective portion classified as net product revenues.

(3) Ineffective portion and amount excluded from effectiveness testing classified as SG&A expense.

(4) Classified as selling, general and administrative expense.

At December 31, 2015, 2014 and 2013, accumulated other comprehensive income before taxes associated with forward foreign currency exchange contracts qualifying for hedge accounting treatment was a gain of $13.6 million, gain of $15.9 million and a loss of $2.4 million, respectively.

The Company is exposed to counterparty credit risk on all of its derivative financial instruments. The Company has established and maintains strict counterparty credit guidelines and enters into hedges only with financial institutions that are investment grade or better to minimize the Company’s exposure to potential defaults. The Company does not require collateral to be pledged under these agreements.